In the land of online: land titles become computerised

The land title system is becoming computerised in a bid to simplify the management of land transfer and mortgage data for consumers, business and government. This article looks at how these major changes will affect the land title system.

How "electronic conveyancing" works

The core of the new process will be similar to how tax agents prepare an electronic tax return for clients. The tax agent prepares a paper tax return which their clients sign. The tax agent then sends an electronic representation of the tax return to the tax office, certifying that the tax return has been signed by the client.

A purpose built national system – Property Exchange Australia (PEXA), will lodge data with the titles offices in each Australian state and territory electronically, replacing paper documents.

PEXA will allow lawyers, licenced conveyancers, regulated financiers and government authorities (called 'subscribers') to send electronic data certified as correct to the Titles Office. On receipt of the data, the Titles Office will change its title register to reflect the change of registered proprietors or changes to legal estates and interests in land.

In summary, PEXA will allow subscribers:

who are lawyers or conveyancers to sign and electronically lodge their clients' land title transfers, mortgages, discharges/releases of mortgages and caveats for registration at the titles office;

who are financiers to sign mortgages and discharges of mortgages on their own behalf, and for their customers if they certify that the customer has signed a paper mortgage or discharges;

to simultaneously settle and complete the transaction by paying and receiving all the financials of the conveyancing transaction including paying stamp duty, registration fees, unpaid council and water rates and land tax.

The system will not be used to complete the other aspects of conveyancing; like title investigations, vendor disclosure statements, contract preparation and negotiation, contract signing, payment of the deposit or calculation of outgoing adjustments and physical delivery of keys. Key changes

The major differences between the new PEXA system and the current paper system are:

PEXA requires a formalised client identification process. This is in place of the current systems that require or provide paper certificates of title on request. Some jurisdictions currently require an official paper certificate of title before the Titles Office registers a change of proprietor of the land or a mortgage on the title. The identification process is likely to be extended to the existing paper system.

The subscriber is required to electronically "sign" the transaction data they send as correct. This is the equivalent of ‘signing’ on behalf of the client the paper documents currently known as the transfer of land, mortgage, discharge of mortgage/release, caveat and withdrawal of caveat.

Subscribers

Subscribers who are lawyers or conveyancers must hold professional indemnity and fidelity insurances. The subscribers will either represent clients or act in their own right. This means that lawyers and conveyancers will generally act as agents for their clients for transfers of land. Financiers will only act for mortgages and discharges of mortgages on their own behalf but will certify that their customer has already signed a paper mortgage.

Only those who qualify as subscribers will have access to the system to ensure the quality and integrity of the data. This is similar to the way that only stockbrokers are able to transfer company shares through a stock exchange.

Expected rollout date

A majority of land titles offices with the exception of the Australian Capital Territory are now rapidly moving towards a computerised system. The ACT is likely to be the last mainland jurisdiction to adopt the system as most ACT land titles are not the usual freehold title form of ownership.

PEXA have already lodged the first electronic transactions for mortgage documents. The Commonwealth Bank was the first bank to conduct the transactions. The National Australia Bank is expected to be the second bank.

The ability to conduct transfers of land in the system is expected to be rolled out from the second half of 2014.

Implications for clients, financiers and lawyers

Clients may find the identification process troublesome and time consuming. Similar to a passport application, a client may need to visit either the post office or their lawyers' office, and possibly their bank, to be identified. However, this is just a once off process.

Individuals who attest the sealing of company documents or similar authorisations will also need to be identified.

Commercial clients with a large number of transactions will benefit as they are only required to be identified once every two years.

Companies which operate nationally will gain efficiencies from adopting a national system. In particular, it will be easier for financiers and individuals who buy or sell land in one state and finance the transaction in another state.

However, land laws remain state based and contracts for sale and vendor disclosure will still be different in each state or territory.

Smaller low volume operators, like small legal firms or conveyancing firms may find the new system too difficult or administratively burdensome to continue their conveyancing transactions. The larger and more specialised operators will become larger, more focussed and more specialised in delivering conveyancing services.

There will be opportunities for commercial property clients to integrate their electronic systems with Hunt & Hunt's systems to provide a more seamless and faster conveyancing process.

The system is likely to be used for data matching by state and federal revenue authorities. The State Revenue Offices are seeking more data matching to capture information for land tax aggregation purposes. The previous federal government recently authorised the Australian Tax Office to spend approximately $77 million on better data matching to identify transactions with potential capital gains, and possibly GST, implications.

Where to from here

Hunt & Hunt has been closely involved with the development of the new system since its inception. We are attending all relevant advisory and working meetings as well as advising and preparing the documentation. We will keep you updated on any further developments. If you have any questions please contact a member of our team.

Murray McCutcheon

Senior Consultant
Hunt & Hunt – Melbourne Office

About Murray

Murray is a member of the Law Council of Australia's eConveyancing Working Group and the sub-groups working with PEXA and Australian Registrars National Electronic Conveyancing Council; the Law Council of Australia's eConveyancing Advisory Group; and has been a consultant to the Law Council on electronic conveyancing. He is a member of the Law Institute of Victoria's Electronic Conveyancing sub-committee. Murray is also the Chair of the recently formed Electronic Conveyancing Group which is the principal user group representing the Australian Bankers Association, the Australian Institute of Conveyancers and the Law Council of Australia.

Read more on the B&F SA VOI Policy in an article published by Hunt & Hunt

Buyer beware:

Defective vendor statements highlighted in South Australian decision

Earlier this year, the District Court of South Australia delivered a decision that now means any debenture, fixed and floating charge or security interest over land must be disclosed in a vendor's statement (commonly known as a 'Form 1.') Failing to disclose the interest will result in the Form 1 being defective. Accordingly, a purchaser will retain their statutory 'cooling off' rights, at least until they become aware of the non-disclosure of the security interest.

This means that cooling off periods could last for months or even years depending upon when completion is to occur.

Background facts of the decision

Adelaide Hotel International Pty Ltd ("AHI") was the owner of land in North Adelaide where it operated a hotel. The land and hotel were subject to a mortgage with National Australia Bank (NAB) which also had a fixed and floating charge ("the charge") over all the assets of AHI. Place on Brougham Pty Ltd ("the developer") entered into an option to purchase the land from AHI to develop the land into a community strata apartment building.

On 23 May 2005, Le Cornu and Kurda ("the purchasers") entered into a contract with the developer to purchase one apartment 'off the plan' for $2,999,000 with a deposit of $299,990. At that time, the developer did not own the land. Accordingly, the Form 1 related to a community lot that did not yet exist. Further, the Form 1 made reference to the NAB mortgage but made no mention of the charge.

The purchasers intended to on-sell the apartment for a profit before completion by assigning their interest in the apartment to a third party. They began marketing the apartment almost immediately but were unable to find a buyer.

The purchasers became aware that the Form 1 was defective in July 2007 and their solicitors advised them to stop marketing the property and to rescind the sale contract by exercising their 'cooling off' rights. However, the purchasers continued to market the property. Three months later the purchasers served a 'Cooling Off Notice' on the developer.

The developer disputed the validity of the Notice and responded with a Notice to Complete under the sale contract. The purchasers did not comply with the Notice to Complete and continued to market the property. Subsequently, the developer terminated the sale contract and retained the deposit. The developer eventually resold the apartment after some time for $1,500,000.00.

In the litigation that followed the purchasers claimed they had a right to 'cool off' and for the return of their deposit. The developer disputed the claim and counterclaimed for the difference between the sale contract price and the amount the apartment sold for less the deposit forfeited.

Key findings of the Court

Non-existence of the community lot at the time the Form 1 was produced

The Court found this did not render the Form 1 defective as it only has to be correct at the time of service.

The charge

The charge secured “all moneys, costs, charges and expenses” in connection with “the preparation, stamping, registration, enforcement or release” of the charge in addition to what was secured by the mortgage. In the Court's view the charge should have been disclosed in the Form 1 as it impacted the land given it was a potential liability on the land over and above the liability in the mortgage. The failure to set out the prescribed particulars of the charge meant the Form 1 was defective.

Affirmation of the sale contract

The purchasers failed to exercise their right to "cool off" for three months after they received legal advice of their right to rescind the contract. Further, they continued to attempt to on-sell the apartment and by not rescinding the contract they prevented the developer from being able to sell the apartment at an earlier time in a declining market. The failure by the purchasers to exercise their cooling off rights and their marketing of the apartment after receiving legal advice meant the purchasers elected to affirm the contract.

Estoppel

The purchasers’ conduct was unconscionable in that they induced an assumption in the developer that they were intending to complete and they knew or expected the developer to rely on his assumption. Accordingly, the purchasers were estopped from denying the validity of the contract.

Judgment

The Court dismissed the purchasers’ claim for return of the deposit; and found in favour of the developer for the forfeiture of the deposit and payment of the vendor’s loss on the resale, plus costs.

What does this mean for the future?

Before preparing a Form 1 for land in South Australia, the vendor's conveyancer or agent must now ensure that every charge the vendor has is reviewed to ascertain whether it impacts the sale property and should therefore be included in the Form 1 particulars.

High court appeal: Willmott Forests

On 10 May 2013, the High Court granted special leave to appeal the Victorian Court of Appeal's decision in Willmott Forests Ltd (Receivers and Managers appointed) (in liquidation) v WillmottGrowers Group Inc and Willmott Action Group Inc [2012] VSCA 202.

The Court of Appeal unanimously reversed the decision of Judge Davis at first instance, and found that a tenant's leasehold interest in land is extinguished by the disclaimer of a lease agreement by a liquidator of a landlord.

This is an unusual scenario that may have significant consequences for tenants, given that it is rare for liquidators of land to disclaim lease agreements. Tenants need to be aware that if they receive a notice of disclaimer of their lease from their landlord's liquidator, they should consider making an application to have the disclaimer set aside.

The application has to satisfy the court that the disclaimer will cause prejudice to the tenant out of proportion to the prejudice that setting aside the disclaimer will cause to the company's creditors.

It is especially important for tenants to realise that they have to make the application under section 568B of the Corporations Act 2001 (Cth) ("The Act") within 14 days of receiving the notice of disclaimer by the liquidator.

Our advice and assistance in the making of the application should be sought immediately upon receipt of a notice of this type.

Disclaimer by a liquidator

Liquidators are given the power to disclaim the property of a company under section 568(1) of the Act, which has the effect of terminating a company's rights, interests and liabilities for that property.

So a third party's rights about that property are only affected so far as necessary to release the company from liability.

The facts of the Willmott decision

Willmott Forests Ltd ("WFL”) leased its land to various parties ("the Growers") to be used for forestry plantations. The lease agreements entitled the Growers to grow and harvest trees on the land for a term of 25 years.

WFL went into liquidation. The liquidators wanted to sell WFL's interests in the land unencumbered by the lease agreements. The liquidators sought directions from the court as to whether they could disclaim the leases, and extinguish the tenants' interests in the land.

At first instance, Judge Davies found that the disclaimer of the lease contracts did not extinguish the lessees' proprietary interests in the land.

The Victorian Supreme Court of Appeal reversed the decision and unanimously found that the disclaimer of a lease agreement by a liquidator extinguishes a tenant's leasehold interest in land.

The Court decided that the landlord's obligation to provide possession and quiet enjoyment is a continuing obligation, as opposed to an accrued one that a disclaimer cannot terminate. The Court also considered that leases are contractual, as opposed to proprietary in nature.

The High Court appeal

The appeal to the High Court of Australia was heard in August of this year but no decision has been handed down at the time of writing. We will provide commentary on the High Court decision as soon as it is available.

Amendments to Community and Strata Titles legislation in South Australia

On 12 April 2013 the Statutes Amendment (Community and Strata Titles) Act, 2012 (SA) was passed. The Act amends both the Community Titles Act, 1996 (SA) and the Strata Titles Act, 1988 (SA). It was partially commenced on 18 July 2013 with the remainder to commence on 28 October 2013.

This amending Act aims to provide further protection for consumers who buy into or own units in strata and community titled developments. The amendments impose greater pre-contractual and contractual disclosure obligations for body corporate management contracts, restrictions on the duration of those contracts, better disclosure of conflicts of interest and commissions and a penalty notice system for by-laws and articles breaches.

Key features of the reforms

Fiduciary Duty

One of the most significant amendments is that a developer must now not act in conflict of interest and make secret profits. This is consistent with the New South Wales Supreme Court decision of Community Association D.P. No. 2700180 v Arrow Asset Management Pty Ltd [2007] NSWCA 527 (30 May 2007). The amendment provides that a developer stands in a fiduciary relationship with the community corporation or proposed community corporation of the development.

In addition, during the developer control period, the developer must exercise reasonable skill, care and diligence and act in the best interests of the corporation when delegating powers to a body corporate manager or entering into a contract for services. Further, the Court has the power to amend or terminate any agreement or contract between a body corporate manager and a developer or associate of either if it involves a breach of fiduciary obligations or other obligations under the legislation.

Right to terminate contract with body corporate

Generally, a developer appoints the body corporate manager shortly after deposit of the plan. In some cases developers have sold management rights to a body corporate manager for long periods. To avoid situations like this, the new legislation provides that after an initial 12 months, owners have the ability to terminate a contract with a body corporate manager on 28 days' notice.

Compulsory insurance

Commercial body corporates will now be required to obtain professional indemnity insurance.

Body Corporate disclosure obligations

The amendments specify what must be included in a body corporate management contract. The contract must also be available for inspection by owners for five clear days before a vote is taken to appoint a body corporate manager. If requested, the body corporate also must provide unit owners or prospective owners with a copy of the professional indemnity insurance within three days.

Penalty for breach of by-laws

The Act raises the maximum penalty for a breach of a by-law from $500 to $2,000 for businesses.

Penalty notice system

A corporation will be able to issue a notice requiring a member or occupier to comply with a by-law within a specified time and warning that if this is not done, a penalty will be incurred. If the recipient does not comply, they will be issued a penalty notice. The recipient can either pay the penalty or apply to the Magistrates Court within 60 days for an order that a penalty is not payable. An unpaid penalty is recoverable by the corporation upon the sale of the owner's lot.

Access to information

All owners will be entitled to inspect records held by the body corporate within three business days of a written request. Further, the corporation will be required to send copies of the bank statements of each quarter to any owner who requests them. In the case of a community corporation, accounts of the previous financial year must be presented at each annual general meeting.

Duty of disclosure

A delegate of a community corporation who has a direct or indirect pecuniary interest in a matter in which they propose to perform delegated functions or powers, must disclose the nature of the interest, in writing, to the corporation. Failing to disclose may incur a maximum penalty of $15,000.

Special resolution

Special resolutions are required for decisions like changing the by-laws, giving permission for substantial alterations to the buildings or taking out insurance over and above that required by law. The amendments impact the two Acts because a special resolution will not pass if at least 25% of units vote against it. If there are three lots, the resolution will not pass if one lot owner does not agree.

Buyer protections

Deposits for 'off-the-plan' sales to be held on trust

Developers who sell 'off-the-plan' are now required to pay deposits into a solicitor, conveyancer or town agent trust account to be held until the plan is deposited and the lots created. This is intended to protect buyers as the developer cannot spend the deposit and leave the buyer exposed if the development does not proceed.

Right to Rescind

The Act provides that buyers have the right to end a contract of sale and recover the deposit if the developer has not lodged plans with the council within the agreed time limit. If there is no agreement regarding a time limit, a default limit of six months will apply. This is intended to discourage developers from marketing properties before the plans have been lodged with council and approval granted.

Appropriate Court

Applications to cancel or amend a strata or community plan are to be heard in the Environment, Resources and Development Court (ERD Court) rather than the District or Supreme Courts. This is because applications to the ERD Court are cheaper and the ERD Court is practised in dealing with applications of a planning nature.

New South Wales Retirement Villages Act: New standard contracts and disclosure documents

The NSW Government has introduced a number of important changes to the regulation of retirement villages in NSW, in the Retirement Villages Amendment (Standard Contract) Regulation 2013 (2013 No 158). The changes, effective 1 October 2013, include the development of a standard contract for retirement villages. There are also some new requirements about what documents operators must provide before prospective residents sign a contract.

The aim of these new requirements is to make it easier for a prospective resident to compare the costs and conditions between villages before signing a contract.

The 2013 amending Regulation modifies the Retirement Villages Regulation 2009 to include three compulsory documents:

Standard retirement village contract (a new document)

General inquiry document that an operator must provide within 14 days after becoming aware that a person is a prospective resident, or acting on behalf of a prospective resident (a new document)

Disclosure statement that an operator must provide to a prospective resident, or person acting on behalf of a prospective resident, within 14 days after that person requests a copy or expresses an interest in particular premises in the village (replaces the previous prescribed form of disclosure statement)

What do you need to do?

To help operators transition to the new requirements, NSW Fair Trading has developed template contracts for the five most common village types. These can be downloaded free-of-charge from the NSW Fair Trading website, where the new retirement village contract and disclosure documents are also available. Operators may adapt the contract for their village with a logo and any additional terms. The additional terms can be added so long as they do not conflict with the requirements of the retirement village laws or any other laws.

Environmental Law Update: Misleading statements about waste management – not a good look

By Hunt & Hunt

A recent New South Wales case highlights the need for accuracy in dealing with company waste, or a business risks damaging its customer base with name and shame orders. You can read the full article, as published by Hunt & Hunt in the July issue of Keeping Good Companies, the journal of the Chartered Secretaries Australia Ltd.

White Paper:

A new planning system for NSW

By Hunt & Hunt

In May this year, the NSW Government released its long awaited White Paper on Planning Reform in NSW and Draft Exposure Bills aimed at creating a new planning system for NSW. Subsequently, Hunt & Hunt held two workshops in Sydney with clients to discuss how individual enterprises might be affected by the new planning system. This feedback was gathered to help formulate a submission on the White Paper.

The NSW Premier and the Minister for Planning and Infrastructure earlier this month signalled major changes to the application of development codes to new projects. The changes are set to eviscerate much of the potential of the White Paper.

The Minister announced by media release:

code assessable development will only apply in nominated growth areas (e.g., around the North West and South West train lines or areas nominated by councils)

councils will be allowed to modify the state-wide codes to better reflect their local area

the target for code assessable developments has been removed entirely

councils will have to prepare Neighbourhood Impact Statements if they intend to implement code assessable development.

These changes will erode the efficiency and affordability of the planning reforms, effectively subjecting development to the same impediments of slow assessment and public criticism as currently exist.

The White Paper set a target of 80% code assessable development within 5 years, but this has now been scrapped. The ability of councils to modify codes will reduce the utility of codes, and render everything from home renovations to multi-dwelling development open to the process of criticism and review that has beleaguered development in the recent past. Councils which wish to take up a code based approach now face an additional bureaucratic process called a Neighbourhood Impact Statement which will further impede the utility of codes.

Moreover, the NSW Premier has stated code application will be rigidly enforced.

The White Paper had envisaged methods for minor variations to code compliance, and only required merit assessment for those portions of a development that fell outside the code.

By contrast, the Premier has made it clear – if you exceed the code by as little as 1 cm, your entire project will be fully merit assessable.

This lack of flexibility defeats much of the potential of the White Paper, which had acknowledged the need to reduce DA costs and timeframes and improve certainty of outcome. Last week's changes will erode these objectives.